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Tuesday, May 20, 2014

Streaming Video and Premium Content Behind AT&T's Buy of DirecTV

As reported by The Verge: Sunday's news that AT&T had agreed to acquire DirecTV for a whopping $48.5 billion
came as no surprise to observers of the pay-TV industry. "If you think
back to the ’90s the marketplace was full of small companies. We've seen
wave after wave of mergers and now there are fewer and larger
companies," says Jeff Kagan,
an independent analyst. "Going forward were going to see even fewer and
even larger competitors going forward or moving toward a national,
competitive marketplace for television, telephone, internet, wireless." For AT&T, the deal is
mainly about gaining scale in video and acquiring the bargaining power
that comes with that to license premium content — particularly with the
looming specter of a tie-up between Comcast and Time Warner Cable.
AT&T will combine its 5.7 million U-verse TV customers with
DirecTV's roughly 20.3 million US subscribers. "All of a sudden you're
talking about the number-two pay-TV provider in the country," says Dan Rayburn, an analyst with Frost & Sullivan. "That means you can negotiate for better programming, and at a better price."

Having access to premium
content is key to AT&T's ambition to become a major player in the
world of streaming video. "DirecTV is way ahead of AT&T in terms of
licensing deals. Something like NFL Sunday Ticket is a game-changer for
AT&T if they can offer it as part of a package to their wireless
customers," says Rayburn. AT&T CEO Randall Stephenson said on an
investor call this morning the deal will allow AT&T to offer premium
video on all screens, from TVs to smartphones to cars and airplanes.

Just how important is big-ticket content like the NFL? The deal terms actually stipulate that AT&T can walk away from the merger if DirecTV doesn't win the contract with the NFL to renew that exclusive.

There are synergies on the
DirecTV side as well. Currently DirecTV can't offer its customers
competitive high-speed internet as part of its satellite package.
"AT&T can bring high-speed internet to those same customers," says
Rayburn. AT&T's Stephenson says that he expects the deal will mean
15 million DirecTV customers, many in rural areas, would be given access
to broadband internet using a combination of technologies, including
wireless. (DirecTV currently offers its customers satellite internet
through packages with Exede, which can deliver download speeds of 12Mbps.)

In a world where double- and
triple-play packages are virtually ubiquitous, this kind of upgrade will
help ward off competition. "The one big thing we’ve been missing is a
two-way broadband pipe to the home," says DirecTV CEO Mike White. "With
this deal we can bundle video and broadband to combat the dominance of
cable." Of course, the cry to combat "the dominance of cable" overlooks
what White and Stephenson would prefer to obfuscate: DirecTV already
counts over 20 million subscribers in the US alone, compared to 26.8
million for Comcast. By that metric, the satellite provider is no
underdog.

DirecTV also gives AT&T a
boost to its bottom line — it reported free cash flow around $2.6
billion last year — and gives the telecom giant substantial new inroads
in Latin America: DirecTV currently counts more than 18 million
customers there. On the call this morning, Stephenson made several
mentions of AT&T's desire to expand aggressively in Latin America,
especially Brazil.

The deal, like Comcast–Time Warner Cable, will need to pass regulatory
scrutiny before it's approved. If both the mega-mergers do succeed, the
media and communications landscape in America will have shifted
dramatically. "You're talking about a world where two companies control
60 percent or more of the paid TV and internet market," says Rayburn.
"If you thought the net neutrality folks were angry before, this is
really gonna set them off."

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About Me

I have more than 25 years of experience in development, design, and mobile communications products and technology. I also enjoy skiing, hiking, scuba, tennis, reading, traveling, foreign languages, and painting. I'm an active member of the National Ski Patrol (NSP) and volunteer my time at either Loveland Ski resort, or Ski Cooper.